GCSE Business Studies
Cash flow
Cash Flow and
Cash Flow Forecasts
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Part 1
Part 2
Cash Flow and
Cash Flow Forecasts
GCSE Business Studies
Cash flow
Part 1
What they are….
Why they matter….
Who uses them….
Outcomes:
GCSE Business Studies
Cash flow
All will be able to define
Cash Inflows and Cash
Outflows.
Level 1
Grade E
Knowledge skills.
Most will be able to
Level 2
explain the concept of Net
Grades D to C –
Cash Flow.
Explanation Skills.
Some will be able to
Level 3
advise actions that should
Grades
B
to
A*
be taken having studied a
Advising Skills.
Cash Flow Forecast.
Starter – The concept of cash movements!
DECEMBER
S
3
S
4
M
5
T
6
W
7
T
F
1
2
8
9
BANK
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
GCSE Business Studies
Cash flow
31
• Imagine it is December 1st
• You have £70 in your bank account on Dec 1st
• In the first 2 weeks of December, you SPEND £60 on presents
for your friends
• On Christmas Day, your favourite auntie gives you £50 as a gift
and your elder sister gives you £50. You put this £100 in the
bank as soon as you can
NOW USE THIS INFORMATION TO ANSWER THE
FOLLOWING QUESTIONS ….
Starter – The concept of cash movements!
Q1. What will your bank balance be at the CLOSE of December?
£110
Q2. What was your OUTFLOW of cash in the month?
£60
Q3. What were your INFLOWS of cash in the month?
£100
GCSE Business Studies
Cash flow
Q4. If your “Net Cash Flow” is found by INFLOWS minus
OUTFLOWS of cash, what was your NET CASH FLOW in
December?
+ £40
Q5 What is your bank balance at the OPENING of January
(Jan 1st)?
£110
Show answers
Starter – The concept of cash movements!
£50
DECEMBER
S
3
S
4
M
5
T
6
W
7
T
F
1
2
8
9
BANK
10 11 12 13 14 15 16
17 18 19 20 21 22 23
24 25 26 27 28 29 30
GCSE Business Studies
Cash flow
31
• Imagine it is December 1st
• You have £30 in your bank account on Dec 1st. You have an
overdraft limit of £50 on your account
• In the first 2 weeks of December, you SPEND £60 on presents
for your friends
• On Christmas Day, you get no money as gifts – everyone bought
you a present
NOW USE THIS INFORMATION TO ANSWER THE
FOLLOWING QUESTIONS ….
Starter – The concept of cash movements!
Q1. What will your bank balance be at the CLOSE of December ?
- £40
Q2. What was your OUTFLOW of cash in the month ?
£70
Q3. What were your INFLOW of cash in the month ?
Nil
GCSE Business Studies
Cash flow
Q4. If your “Net Cash Flow” is found by INFLOWS minus OUTFLOWS of
cash, what was your NET CASH FLOW in December ?
£70
Q5 What is your bank balance at the OPENING of January
( Jan 1st)?
- £40
It’s a good job you had an
overdraft set up on your bank account!
Show answers
A Cash Flow Table…..Using Example 1
December
CASH INFLOWS
Income from chores.
ZERO
Income from gifts.
£100
TOTAL INFLOWS (A)
£100
CASH OUTFLOWS
Spending on others.
GCSE Business Studies
Cash flow
Spending on self.
£60
ZERO
TOTAL OUTFLOWS (B)
£60
Net Cash Flow for month (C):
( found by A MINUS B)
£40
Opening Bank Balance (D)
( Start of month)
£70
Closing Bank Balance
( End of month).
Found by (C) plus (D)
£110
January
February
A Cash Flow Table…..Using Example 2
December
CASH INFLOWS
Income from chores.
ZERO
Income from gifts.
ZERO
TOTAL INFLOWS (A)
ZERO
CASH OUTFLOWS
Spending on others.
Spending on self.
GCSE Business Studies
Cash flow
TOTAL OUTFLOWS (B)
Net Cash Flow for month (C):
( found by A MINUS B)
Opening Bank Balance (D)
( Start of month)
Closing Bank Balance
( End of month).
Found by (C) plus (D)
£70
ZERO
£70
(-£70)
£30
(-£40)
OVERDRAWN !
January
February
Cash Flow Forecasting
If a person or a business wants a clearer
picture of when their best and worst months
for cash are, they will try and ESTIMATE their
monthly inflows and outflows of cash.
They use the cash flow table to help them.
GCSE Business Studies
Cash flow
RESULT- the cash flow forecast – tells you
which months you may need help from your
bank with an overdraft.
Let’s have a go at a cash flow forecast for
January using example 1….
GCSE Business Studies
Cash flow
Activity – January Cash Flow Estimate
•
Imagine it is JANUARY 1st.
•
You have £110 in your bank account on Jan 1st.
•
By January 31st, you ESTIMATE you will have earned £20 for
doing chores around the house. FILL THIS IN ON THE CASH
INFLOWS.
•
In the first 2 weeks of January, you ESTIMATE that you’ll SPEND
£60 on a birthday present for your mom. FILL THIS IN ON THE
CASH OUTFLOWS.
•
You also ESTIMATE that you’ll spend £50 on yourself on
clothes. FILL THIS IN ON THE CASH OUTFLOWS.
NOW USE THE INFORMATION YOU HAVE ADDED TO THE
CASH FLOW CHART TO WORK OUT and FILL IN:
(A) The predicted NET CASH FLOW for January.
(B) The predicted CLOSING BANK BALANCE for January ( and
therefore the opening bank balance for February )….
Estimating January - Cash Flow Table …..Using Example 1
December
January
ZERO
20
£______
Income from gifts.
£100
ZERO
TOTAL INFLOWS (A)
£100
20
£______
£60
60
£______
ZERO
50
£______
£60
110
£______
February
CASH INFLOWS
Income from chores.
CASH OUTFLOWS
Spending on others.
Spending on self.
GCSE Business Studies
Cash flow
TOTAL OUTFLOWS (B)
90 )
(-£______
Net Cash Flow for month (C):
( found by A MINUS B)
£40
( a minus because
outflows are more than
inflows)
Opening Bank Balance (D)
( Start of month)
£70
£110
Closing Bank Balance
( End of month).
Found by (C) plus (D)
£110
20
£______
Show answers
Quick check ….
What are cash
inflows ?
What are cash
outflows?
GCSE Business Studies
Cash flow
How do we find NET
CASH FLOWS for a
month ?
a) How do we find the closing bank balance for a
month?
b) How can we decide what the opening bank balance
is for the following month?
Quick check ….
• In a minute, we are moving on to ESTIMATE your
cash flow forecast for February.
GCSE Business Studies
Cash flow
• As you only have £20 in the bank at the start of
February, what FINANCIAL advice do you think a
good business person or a bank manager would
give you about your cash flow situation in February?
Advice could include ….
Watch your spending!
Try and do more chores to earn more money!
Get a part time job around school !
GCSE Business Studies
Cash flow
Activity – February Cash Flow Estimate
•
Imagine it is FEBRUARY 1st
•
You have £20 in your bank account on Feb 1st.
•
By February 29th, you ESTIMATE you will have earned £30 for
doing more chores around the house. FILL THIS IN ON THE CASH
INFLOWS.
•
In the first 3 weeks of January, you ESTIMATE that you’ll SPEND
£60 on a birthday present for your dad. FILL THIS IN ON THE CASH
OUTFLOWS.
•
You also ESTIMATE that you’ll spend £10 on yourself on hair care.
FILL THIS IN ON THE CASH OUTFLOWS.
NOW USE THE INFORMATION YOU HAVE ADDED TO THE CASH
FLOW CHART TO WORK OUT and FILL IN:
(A) The predicted NET CASH FLOW for FEBRUARY.
(B) The predicted CLOSING BANK BALANCE for FEBRUARY ( and
therefore the opening bank balance for MARCH )….
Answers February - Cash Flow Table ….. Using Example 1
December
January
February
ZERO
£20
Income from gifts.
£100
ZERO
TOTAL INFLOWS (A)
£100
£20
£60
£60
£60
ZERO
£50
£60
£110
£10
£70
Net Cash Flow for month (C):
( found by A MINUS B)
£40
( a minus because
outflows are more than
inflows)
Opening Bank Balance (D)
( Start of month)
£70
£110
£20
Closing Bank Balance
( End of month).
Found by C plus D
£110
£20
(-£20)
CASH INFLOWS
Income from chores.
£30
ZERO
£30
CASH OUTFLOWS
Spending on others.
Spending on self.
GCSE Business Studies
Cash flow
TOTAL OUTFLOWS (B)
(-£90)
(-£40)
Show answers
Activity – Summer Cash Flow Estimates
• Imagine it is June 1st.
GCSE Business Studies
Cash flow
• Use the information provided on the cash
flow forecast to fill in and interpret the
missing figures.
Completing summer - Cash Flow Table…..Activity 3
June
July
August
CASH INFLOWS
Income from chores.
£10
£30
£10
ZERO
ZERO
£10
£10
£30
20
£______
ZERO
£60
£40
Spending on self.
ZERO
£20
£30
TOTAL OUTFLOWS (B)
£ZERO
£80
70
£______
Net Cash Flow for month (C):
( found by A MINUS B)
10
£______
( a minus because
OUTFLOWS are more
____________
than inflows)
£70
£80
30
£______
80
£______
30
£_______
(-£20)
Income from gifts.
TOTAL INFLOWS (A)
CASH OUTFLOWS
GCSE Business Studies
Cash flow
Spending on others.
Opening Bank Balance (D)
( Start of month)
Closing Bank Balance
( End of month).
Found by (C) plus (D)
50 )
(-£______
(-£50)
Show answers
Summer Cash Flow Activity – Questions for you to
answer …
1. Based on your answer for the closing bank
balance in August, what would you advise this
person to ensure they have set up on their bank
account BEFORE August?
GCSE Business Studies
Cash flow
2. What advice might you give them about their cash
planning situation for SEPTEMBER?
Summary:
GCSE Business Studies
Cash flow
• A Cash Flow Forecast is a table where a person or
business tries to forecast/ estimate their inflows
and outflows of cash over a period of months.
• This helps them identify where they need support
from a bank with an overdraft facility AND
• It shows times where there is plenty of spare cash
which could then be put in to an interest earning
savings account.
GCSE Business Studies
Cash flow
Questions - Use of Cash Flow Forecasts….
1.
Why will the owner of a business want to have a cash flow
forecast?
2.
Why will they compare their ACTUAL cash flows each month
with their estimated cash flow forecast?
3.
Why will a bank want to see a cash flow forecast before they
decide whether or not to grant an overdraft or bank loan?
4.
Why might a potential investor want to see a cash flow
forecast for a company ?
Cash Flow and
Cash Flow Forecasts
GCSE Business Studies
Cash flow
Part 2
Cash Flow Forecasts in a
business context ….
Outcomes:
GCSE Business Studies
Cash flow
All will be able to Group
Cash Inflows and Cash
Outflows for a business.
Level 1
Grade E
Knowledge skills.
Most will be able to
Level 2
complete a cash flow
Grades D to C –
forecast and interpret it.
Application and
Interpretation Skills.
Some will be able to advise Level 3
problems with cash flow
Grades B to A* forecasting and discuss
Advising Skills.
why stakeholders will be
interested to see them.
Match the definition to the key term…
GCSE Business Studies
Cash flow
Key term
Definition
1. CASH INFLOWS
Net Cash Flow plus opening Bank
Balance tells you this….
2. Cash outflows
Bank balance at the start of a
month ( same as closing balance
of the previous month!)
3. Net Cash Flow
Cash Income coming in to a
person or business
4. Opening Bank Balance
Cash Inflows MINUS Cash
Outflows
5. Closing Bank Balance
Cash spent by a person or
business
Click and drag the correct definition to match the key term
CASH INFLOWS to a business
compared to the CASH OUTFLOWS…
1. Vehicle Expenses e.g. fuel
GCSE Business Studies
Cash flow
2. Sales Turnover ( or Revenue)
Click the boxes,
once for inflow,
twice for
outflow
Cash inflow/ outflow
OUTFLOW
INFLOW
OUTFLOW
INFLOW
3. Stock Purchases
OUTFLOW
INFLOW
4. Credit Notes from Suppliers
OUTFLOW
INFLOW
5. Energy Costs
OUTFLOW
INFLOW
6. Insurance
OUTFLOW
INFLOW
7. Share Capital ( or Owners Capital)
OUTFLOW
INFLOW
8. Bank Loan Received
OUTFLOW
INFLOW
9. Monthly repayments and interest on Bank Loan.
OUTFLOW
INFLOW
10. Government Grant
OUTFLOW
INFLOW
11. Wages and salaries paid to staff.
OUTFLOW
INFLOW
12. Rent.
OUTFLOW
INFLOW
Put these stages of working out a Cash
Flow for a month in the best order….…
First
A) Add NET CASH FLOW to the opening bank balance to
find the closing bank balance for the month.
B) ADD up ALL Cash INFLOWS for the month.
GCSE Business Studies
Cash flow
C) Take Cash OUTFLOWS away from total cash INFLOWS to find
the NET CASH FLOW for the month
D) ADD up all Cash OUTFLOWS for the month.
E) Write the closing bank balance for the current month in
to the box for the OPENING bank balance of the NEXT
month.
Last
B, D, C, A, E
Reveal answer
Activity – A Business Cash Flow
• We are going to look at an example of a completed
Cash Flow Forecast for 3 months of a business.
GCSE Business Studies
Cash flow
• We are then going to check we can complete and
interpret some cash flows.
• Note – need word document worksheet for this
task called “CASH FLOW WJEC ACTIVITY”.
Discuss our answers…
• Explain why you think Cathy’s purchases of materials and
energy costs rise quite a bit in December compared to
October and November.
• Fully explain what you think the difficulties and problems
might be when businesses try and do cash flow forecasting.
GCSE Business Studies
Cash flow
• Why might using spreadsheet software help a business
create a Cash Flow Forecast?
• If when a business compares its ACTUAL cash flow with its
cash flow forecast, the cash flow forecast is constantly
UNDERESTIMATING the amount of cash INFLOWS, what
advice would you give the business about what it should do
with its Cash Flow Forecast Table?